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Benjamin and Tamae Kekona sued Ms. Paz Feng Abastillas, alias "Paz Richter", and attorney Robert A. Smith and various of his entities in Hawaii in 1993 (yes, this case goes back that far).

Smith and Abastillas then transferred certain properties to Dr. Bornemann to avoid the Kekona's collection of the judgment. So, still in 1993, the Kekonas sued Smith, Abastillas and Bornemann for fraudulent transfers and conspiracy to commit fraudulent transfers.

The jury in that case awarded damages roughly equal to the values of the properties transferred and other damages, and also awarded $250,000 in punitive damages against the defendants. The trial court found this amount excessive, and reduced it to $75,000.

In a year 2000 trial, the Kekonas gambled the $75,000 against a bigger payoff on retrial, and the second time around won $594,000 punitive damages against Dr. Bornemann.

All the Defendants then appealed to the Hawaii appellate court, which threw out $100,000 in general damages against the defendants, but let the $594,000 punitive damages award against Dr. Bornemann stand. That takes us to the year 2006.

The same year, the case went up to the Hawaii Supreme Court, which held that the wrong standard of proof was applied -- but this was in the Kekonas favor since the Court held that the Kekonas needed to prove their fraudulent transfer case by "clear and convincing" burden of proof, and not the "preponderance of the evidence" standard allowed by the trial court and Hawaii Court of Appeals.

Thus, in 2008, the case was retried, with the higher "clear and convincing" burden of proof applied, and the Kekonas won yet again. This time, the jury awarded the Kekoas $253,075.29 in general damages, and Dr. Bornemann got slammed with over $1.6 million in punitive damages!

And so the case was again appealed by Dr. Bornemann, this time being decided on May 31, 2013, and is the Opinion that we are interested in.

Since the 1993 Judgment, interest had accumulated on that judgment in the amount of $253,075.29. The Kekonas were able to convince the Court that because of the conspiracy involving Dr. Bornemann, the Kekonas were unable to collect that amount, and thus Dr. Bornemann should be liable for that amount. They were not able to convince the Court, however, that they should get what amounted to "double recovery" by winning that interest as both general damages and conspiracy damages.

But the Hawaii Court of Appeals was not sympathetic to Dr. Bornemann's attempts to get out from under the punitive damages award, finding that the jury had been correctly instructed and their award was supported by the evidence.

However, Dr. Bornemann had one arrow left -- that the punitive damages award was excessive under the Due Process Clause of the U.S. Constitution. Here, Dr. Bornemann found some traction:

Here, the remedies available to the Kekonas and the compensatory damages awarded in this case were considerable. Because of Bornemann's participation in the conspiracy to fraudulently transfer the Kaneohe Property, the Kekonas were unable to collect on their 1993 Judgment, which resulted in damages in the amount of $253,075.29, equal to the accumulated interest. Thus, the Kekonas were awarded $253,075.29 in compensatory damages, and were also provided with remedies to collect on the 1993 Judgment against Bornemann's assets as discussed above. In light of the circumstances of this case, an award of punitive damages of approximately six and one-half times the interest-based damages is unreasonable and disproportionate to the actual harm done to the Kekonas from Bornemann's conduct.

Having found that the $1.6 million in punitive damages awarded against Dr. Bornemann was too much, the next question facing the Court of Appeal was: What is the correct measure of punitive damages. Here, the Court was not helped by the dearth of Hawaii opinion law on the subject, though not case reviewed has yet exceeded $250,000.

The Hawaii Court of Appeals thus held that the original punitive damages award for $253,075.29 against Dr. Bornemann was the correct result after all, and remanded the case back to the trial court to either remit (reduce) the punitive damages award to that amount, or else have a new jury trial to calculate punitive damages against Dr. Bornemann.

ANALYSIS

This is yet another case that dispels the notion that "in a fraudulent transfer action, all that happens is that the debtor gets the asset back."

Here, Dr. Bornemann as the third-party transferee got slammed with conspiracy damages for interest on the judgment, punitive damages -- and more than a decade's worth of litigation bills.

This case also illustrates the dangers to transferees of getting dinged with punitive damages. Indeed, in these cases it is often the transferees who are the most at risk. The debtor usually doesn't have anything, and the creditor is usually overjoyed to find a new party who is not in financial distress to pay the judgment.